Market transformation: water sector is next

Deregulation will force water companies to change their strategies especially when it comes to creating a customer-centric approach.
Published: Fri 03 Jun 2016

While the energy sector is currently undergoing major transformation, driven mainly by environmental factors and the need for sustainability, the pace of change in the water sector has been surprisingly slow in comparison.

However, this is changing, according to Peter Metcalf from EXL Service, who told Engerati that the transformation in the water sector is gaining momentum due to a number of factors such as escalating water costs, decaying infrastructure, strained supplies and depleted groundwater sources. Water utilities are looking to use smarter technologies and programmes to improve operational efficiencies and reduce water losses. Metcalf lists these as follows:

• Advanced metering infrastructure (AMI) will help these utilities tackle ongoing non-revenue water challenges, customer frustration and rising operational costs. The deployment of AMI helps to reduce meter data collection costs and pinpoint distribution losses. Energy utilities are ahead in smart meter adoption but the gap is expected to narrow. AMI will also create a more customer-centric model, enabling customers to manage consumption better and they can look forward to a better level of service from their utility.

• With the help of modern SCADA, meter data management, customer data, billing and geographic systems, water utilities will be able to provide end-use customers access to consumption, billing, and other utility programme information through digital channels including web, mobile, text, email, and integrated voice response.

• Ongoing urbanisation and water stress due to climate variability is driving utilities to look for new and sustainable water sources. The implementation of programmes and systems to collect and reuse storm water as well as the deployment of modern water recycling technologies will grow as a result.

Water deregulation

Water deregulation is also creating waves in the water sector, explains Metcalf. And the UK’s water market is a good example of this.

With competition in the UK’s water market due to commence in April 2017, those managing the deregulation programme are working to tight deadlines, and big changes are already happening behind the scenes for water suppliers.

Market Operator Services Ltd (MOSL) was set up specifically for the task of introducing competition for non-household customers. MOSL is a private company, owned and funded by water companies – but with an obligation to act independently for the benefit of all market participants. Its members are working closely with DEFRA (Department for Environment, Food and Rural Affairs) and the regulator Ofwat, to ensure that the operational capability exists to support the UK’s new open market.

The first and all-important “design and build” stage for the new open market has already been established and the rules governing the open water market and the systems needed to operate the new marketplace are in place. The Central Market Operating System (CMOS), under development by MOSL, will become the digital platform through which wholesalers and retailers interact.

The outcome should be more choices for customers and the ability to command improved products and services to support their businesses.

Testing the waters

Between April and September of this year, the programme will move into the testing stage. This involves not only the testing of new systems to ensure market rules compliance, but also the validating of data supplied by market participants.

There is an obligation on all water and sewerage companies to provide accurate data on their current customers, and they will be under pressure to provide this on a timely basis so that the market opens on time.

From April 2016, water and sewerage companies can apply to MOSL for a Market Entry Assurance Certification (MEAC), which will give them entry to the new open market 12 months later. Alongside this certification, all companies will require a Water Supply and Sewerage License (WSSL) from Ofwat.

Companies will need MEAC before being allowed to participate in the shadow market operation within stage three.

Final countdown – shadow operations

After the testing phase, a shadow market will be created to reveal potential problems before the market goes live.

The shadow market will run for six months between October 2016 and March 2017 and it will require participation from both incumbent suppliers and new entrants. It will also test the processes for customer switching.

In early 2017, a final decision on whether or not the market is ready to open will be made by the Secretary of State. The whole programme is running to extremely tight timescales, with mounting pressure being placed on water companies; who will be busy developing their retail arm, separating out operations, and compiling their data over the coming months.

Some water companies are expected to exit the market this October, focusing instead on the domestic market.

Supporting deregulation readiness

EXL, an operations management and analytics company, has recognised the need for utilities to be market-ready and has moved into the Open Water space to help them prepare.

Metcalf explains: “We decided last year that we have the experience from energy to effectively support water companies in the new competitive business market with consultancy, process development, operations management and analytics. The opening of the water market will work in a similar way to energy and EXL has a great deal of experience and insight into the customer journey from switch through meter-to-cash.”

EXL has reviewed all Open Water industry processes and flows and is currently working on journey maps to integrate to billing and CRM, says Metcalf. “Understanding billing exceptions and how to mitigate these will play a significant part in supporting a great customer experience, not to mention cash flow.”

Customer journey-based smart operations

EXL will be helping utilities to improve their customer experience in the face of changing industry demands. “Customers are evolving. We will help utilities adopt a proactive approach to business processes, thereby ensuring customer satisfaction.”

Metcalf explains that the success of customer-centricity relies on measuring customer outcomes. A common mistake is when customer outcomes is confused with process outcomes like the loading of a customer on the supplier’s system, he says. Process outcomes were typically established due to the ‘silo’ or functional-driven operating models. In the customer on-boarding process, the customer outcome is timely supply and timely first bill.

Timeliness and accuracy cannot be driven by industry, process, or system constraints, but need to be derived from Big Data and customer behavioural analytics. While analytics is increasingly being leveraged by other industries, utility companies haven’t been able to use and embed them effectively in their operating models.

Metcalf explains that most utilities are segregated based on front- or back-office teams. Operations need to be designed based on the customer touch points so that they deliver a seamless service without shuttling customers between front- and back-office or third parties.

The organisational design change required to do this is probably the biggest barrier to delivering great customer experience because it can lead to a large restructure of organisation and systems. For example, customer on-boarding should be managed by one leader/team irrespective of whether the specific processes are managed by what would typically be classified as the back- or front-office.

In addition to having the right organizational structure, process inputs and outputs are best driven by analytics to highlight trends and areas for improvement. Analytics should be challenging the drivers of the process and predicting likely downstream impacts on the customer. This can make utilities companies more proactive in managing their customers as opposed to reacting to issues after they happen to now dissatisfied customers.

Smarter quality models

In any service industry, companies measure quality based on existing processes and system constraints, which is typically ineffective from a customer point of view. Customers care about the “right” outcomes and have little regard for energy and utility providers’ process guidelines.

Outcome-based quality assurance has existed in other industries like manufacturing for many decades but is not yet widely embraced by the service industry.

Another challenge with traditional quality models is the use of small sample data versus leveraging information about the whole population. The best way to solve this, according to Metcalf, is through the use of analytics that identify patterns of non-conformance and their first-degree causes. Improvement opportunities can then be designed around the process, system or associate handling the customer account.

Metcalf concludes: “The significance of independent suppliers is growing. A key development in the retail markets over the previous year has been their continued growth. Engagement among consumers is broadly flat but this will have to change if water utilities want to keep their customers and attract new ones in the new ‘open water’ marketplace.”